2023 Form 2555 - Foreign Earned Income
Federal Form 2555, titled "Foreign Earned Income," is a crucial document for U.S. citizens and resident aliens who live and work abroad. The form is primarily used to claim the Foreign Earned Income Exclusion (FEIE) and, in some cases, the Foreign Housing Exclusion or Deduction. This allows eligible taxpayers to exclude a significant amount of their foreign-earned income from U.S. taxation, thus potentially reducing their overall tax liability.
Understanding Form 2555
When individuals work outside the United States, they often face the challenge of double taxation—being taxed by both the U.S. government and the country where they earn their income. Form 2555 provides a solution by allowing taxpayers to exclude a portion of their foreign wages from U.S. taxes. For the 2023 tax year, the maximum exclusion amount is $120,000, subject to annual adjustments.
Eligibility Requirements
To qualify for the FEIE using Form 2555, individuals must meet specific criteria:
- Physical Presence Test: Taxpayers must be physically present in a foreign country for at least 330 full days during a 12-month period.
- Bona Fide Residence Test: Alternatively, individuals can qualify if they are bona fide residents of a foreign country for an entire tax year.
Additionally, the income must be earned from foreign sources; income from U.S. sources does not qualify for the exclusion.
Benefits of Filing Form 2555
- Tax Savings: By excluding foreign-earned income, expats can significantly reduce their taxable income, leading to lower overall tax bills.
- Housing Exclusion: The form also allows for deductions related to foreign housing costs, further enhancing potential savings.
- Simplified Reporting: Filing Form 2555 can simplify the reporting of foreign income and may streamline tax filing processes for expatriates.
For the current year's Form 2555, click here.